Can We Really Grow With Less Energy?

A cornerstone of liberal energy policy is the assumption that economic growth can continue even as energy consumption, and therefore CO2 emissions, decline. But there is zero empirical support for that belief. Historically, economic growth equals growth in energy consumption. It is folly to think that we can maintain economic growth while throttling production of energy.

In recent years, we have heard statements indicating that it is possible to decouple GDP growth from energy growth. I have been looking at the relationship between world GDP and world energy use and am becoming increasingly skeptical that such a decoupling is really possible.

Prior to 2000, world real GDP (based on USDA Economic Research Institute data) was indeed growing faster than energy use, as measured by BP Statistical Data. Between 1980 and 2000, world real GDP growth averaged a little under 3% per year, and world energy growth averaged a little under 2% per year, so GDP growth increased about 1% more per year than energy use. Since 2000, energy use has grown approximately as fast as world real GDP–increases for both have averaged about 2.5% per year growth. This is not what we have been told to expect.

Why should this “efficiency gain” go away after 2000? Many economists are concerned about energy intensity of GDP and like to publicize the fact that for their country, GDP is rising faster than energy consumption. These indications can be deceiving, however. It is easy to reduce the energy intensity of GDP for an individual country by moving the more energy-intensive manufacturing to a country with higher energy intensity of GDP.

What happens when this shell game is over? In total, is the growth in world GDP any less energy intense? The answer since 2000 seems to be “No”.

This is a key point. To the extent that we reduce our energy consumption simply by outsourcing an ever-growing percentage of manufacturing to other, less developed and less energy-efficient countries, we have neither enhanced our economic well-being nor done anything to reduce world-wide consumption of energy and emission of CO2–assuming that such reduction is a desirable goal.